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Corporate Insurance

While this category of risk management is titled Corporate Insurance, most of the types of coverage included herein are also applicable to others forms of business structure including partnerships.

The question that business owners need to ask themselves when it comes to business continuation in the event of the death or disability of a partner or key person is "how will the business manage when such an event happens?" Most often the best answer is through insurance. Corporate owned life insurance offers benefits over individually owned coverage including potential tax benefits, creditor protection, funding to find an individual to take over , etc.

Considering the risk to a business of not planning for the possibility of such events, taking some time to review your needs and options with one of our insurance advisors is time well spent for business owners. Read on to learn about a few of the coverage types we offer.

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Buy/Sell Coverage

One of the biggest concerns in a business partnership is what happens when one of the partners dies. In order to make the deceased's estate whole, someone will need to buy out the deceased person's interest in the business. The deceased may have someone such as a spouse or child who will take over their interest in the business, however, more often than not the deceased's beneficiaries do not want to become involved in the business and, therefore, there needs to be funds available either for a third party to buy into the business with their own funds or the remaining partner(s) need to "buy out" the deceased's interests in the business. Since the business does not likely have enough cash on hand to fund this kind of purchase, using life insurance owned and paid for by the business is the most effective solution.

Setting up a life insurance policy for this purpose starts with a Buy/Sell Agreement created by the partners and their lawyer. This type of agreement lays out in detail how the business will purchase back the shares of the deceased, leaving cash in the estate equal to a pre-determined amount as set forth in the agreement.

The most common type of agreement is what is known as a Cross Purchase. This type of agreement can be funded by partners taking out coverage on each other individually or the corporation taking out the coverage on all lives and any death benefits paid out to the deceased's beneficiaries via the corporation's Capital Dividend Account. There are many considerations in determining how best to set up such a policy. Our advisors will work with you and your lawyer to find the best fit for your situation.

Key Person Insurance

Beyond funding a Buy/Sell Agreement, the next most important coverage to consider is Key Person Insurance. Most companies have one or more individuals who are essential to the operation of the business. They might be owners or employees, however, the loss of any of those, be it due to disability/illness for an extended period of time or death, will have a significant impact on the business. 

A company may therefore decide to take out coverage on a particular employee. Generally speaking, this is more commonly done to protect the company against losing the employee for an indefinite period of time due to a disability or injury. If it is due to death, a suitable person will need to be found in short order to take over that position and, therefore, the cost to the company may be minimal. If that employee suffers a disability or a significant illness like cancer or stroke, the company may be in a position to have or wish to continue paying them their salary while they are off, while also needing to find someone to replace them on a temporary basis and paying a second salary. In such a situation, Key Person Disability Insurance is the solution to protect the company's financial position.

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